We’ve seen a long stream of earnings reports and other worthwhile bits of data on Real Money Portfolio stocks since I last wrote to you, including some that actually included some interesting news, so prepare for a lot of quick updates….
Medical Properties Trust (MPW) reported another quarter of ho-hum… pretty much met the forecasts, and reiterated that they expect 2018 “normalized” FFO to be between $1.42 and $1.46 per share. That quite easily covers the (increased last quarter) $1/year dividend. The dividend is also covered, just barely, by actual net income (expected to be between $1-1.04 on the year), which gives them a bit of a stronger income statement than they’ve often had in the past.
That doesn’t necessarily mean this strength is sustainable forever — MPW is doing fine on this front, but the biggest difference between income and FFO is depreciation, which is an expense against income but isn’t a current cash cost so isn’t deducted from FFO. REITs, in practice, often count on selling buildings occasionally or on the general tendency of real estate to increase in value to counter the depreciation cost over the long term, and in effect they often capitalize that depreciation… instead of setting money aside for renovations and replacement, they just capitalize those projects when they come along, which has worked pretty well for most of the past 50 years but might not work well forever if real estate values stagnate.
But in the context of the way the market understands REITs these days, as income investments with some inflation protection (real estate rises in value, leases have rising rents to account for inflation), things are still going swimmingly at MPW. Acute care hospitals and rehab hospitals are far more unique and valuable than office buildings and shopping malls, I think, and should be in demand for a long time, so I’m still happy holding MPW at a near-8% yield and a rational valuation. The stock is volatile in reaction to interest rate expectations, and they run into (usually smallish) issues with tenants from time to time that dent rental income (bankruptcies, etc.), so there may be better buying opportunities, but I still think that buying with an effective 8% yield should work out well — that’s $12.50 per share (right in the middle of the range it has traded in so far this year, roughly $12-13).
Also in the ...